Analysts discount U.S. drought fears from La Nina event

With predictions of a good crop, it may be a good time for producers to sell, says expert

DES MOINES, Iowa — Analysts at the World Pork Expo gave grain farmers little reason to be bullish this year, discounting ideas that a La Nina will soon kick in, leading to a dry Midwest and higher crop prices.


It could mean crop production will be bountiful in the U.S. Midwest.


“If it hasn’t turned into a La Nina by the middle of July, don’t worry about it,” said Iowa State University agricultural weather guru Elwynn Taylor.


Grain market analyst Eric Scholer of Express Markets Inc. said today’s crop futures prices probably won’t last until the fall.


“I think this premium we’ve seen come into the markets in the last few weeks is, for a grain producer, a selling opportunity,” said Scholer.


“Then we’re looking for markets to head lower towards fall.”


Scholer is predicting autumn corn prices of less than US$3.50 per bushel. New crop December corn recently has traded around $4.40.


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Scholer’s price prediction is based on the assumption of a good U.S. crop. He is discounting the possibility of a La Nina happening soon enough to cause dry weather that would damage the U.S. corn crop. 


Taylor said corn crops will have passed their most vulnerable water-reliant period by the end of July, and La Nina, which tends to create drought conditions in the Midwest, is not yet active. 


Soybeans are still vulnerable to drought in August, but when a La Nina comes in it will be weeks before the full effect is felt.


Only a big cut to U.S. production would have a major price impact, Scholer said. 


“There’s enough global stocks of all commodities and grains that we don’t see any risk, unless we have a drought here in the Midwest,” said Scholer. 


The recent grain market rally has built in a weather premium based on the possibility that a La Nina will occur while the crops are most vulnerable. 


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The longer that the La Nina does not occur, and the longer that Midwest weather is favourable, the greater the likelihood that the market’s premium will dissipate.


Taylor said La Ninas tend to last for more than a year, so next summer is more likely to see significant production losses if the system comes into force.


Taylor thinks Midwestern weather has entered a 25-year period of volatility, following the previous stable period from the early 1990s to 2012.


It means farmers are facing more production risk than they have experienced for almost two decades.


“We have just come back into a weather pattern that will be much like the 1980s, I suspect,” he said.


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